-- Refining stocks surged 53% in Q1 2026 as fuel margins spiked, though earnings lagged expectations with average earnings per share seen at $0.19, TPH Energy Research said Thursday.
The quarter was marked by sharp volatility as the Iran conflict disrupted global supply, pushing refining margins higher despite operational and cost-related headwinds, the report said.
Global refining activity dropped to about 80 million barrels per day in March from 86 million b/d in January, reflecting Middle East disruptions and feedstock shortages in Asia, TPH added.
Fuel margins surged in response, with US gasoline and diesel cracks jumping to $13 per barrel and $46/bbl in March from $6/bbl and $22/bbl earlier in the quarter, the report added.
However, average gasoline margins remained weak at $9/bbl for Q1, pressured by strong US refinery utilization of about 91.5%, which kept supply elevated, according to TPH.
Diesel margins performed better, averaging $30/bbl, supported by stronger demand running about 1% above five-year average levels and supply disruptions linked to Iran.
The Singapore market saw sharper gains, with gasoline and diesel cracks rising to $16/bbl and $41/bbl, up about $3/bbl and $18/bbl over the quarter, according to TPH.
Additional tailwinds included wider heavy crude differentials, tighter West Coast supply following refinery closures, and regulatory benefits for smaller refiners.
Despite strong margins, earnings disappointed due to weak capture rates of about 66%, as higher crude prices and derivative losses weighed on profitability, TPH added.
Other pressures included lower returns on residual products such as asphalt and increased compliance costs tied to renewable fuel obligations, the report added.
These headwinds offset benefits from improved crude sourcing and stronger jet fuel spreads, leaving analysts below consensus for several major refiners.
Looking ahead, Q2 profitability is expected to improve significantly, supported by stronger margins with gasoline and diesel indicators near $9 and $47 per barrel, it said.
TPH forecasts average Q2 earnings per share at $4.66, above consensus of $3.93, with stronger performance expected across all covered refiners, it said.
TPH said it is particularly bullish on Phillips 66, Valero (VLO) and Par Pacific (PARR), citing improving fundamentals despite continued caution around margin capture and cost pressures.
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